The Dow lost -97 today and S&P futures are down -7.50 tonight. How quickly will they buy this dip?

It had to happen eventually. The Dow has not had a triple digit loss in 2012 but it came very close today. The constant confusion over Greece plus negative comments from the Fed minutes were the events to finally push traders away from the table.

As I said on Monday, cash is a position. A spike through S&P 1350 did not hold and the S&P lost -7 points for the day to close at 1343. It was not traumatic and it was orderly. Personally I hope it continues. We need a good 2-3 day washout to recharge the batteries and allow new money to feel better about going long at these levels.

I am not adding any plays tonight. This newsletter is to update the plays with expiring options.

Keep your powder dry and your fingers crossed for a dip to strong support at 1310.

Jim Brown

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Current Portfolio

Current positions

Current positions

Current Position Changes

CRR - Carbo Ceramics (Short Put)

When we entered the Carbo Ceramics play we added a long put just in case Carbo had not finished declining. We used a February put because if was cheap. The theory being if the play was not headed in our direction by Feb expiration then we exit both sides and find another play.

There are only two days left in the February expiration cycle. To complicate matters Carbo rallied +2.51 today to $89.56. Having crude prices trade up to $102 did not hurt. Crude is holding firm overnight at $101.62 so no collapse yet. You can thank Iran for that.

With the equity market likely to open negative on Thursday I am expecting Carbo to trade down even if crude prices are strong. I want to keep the long put open during the day and sell it just before the close. I believe Carbo is trying to put in a bottom at $86.50. If we get a decent dip the put premium on the long put will rise and I want to capture that at the close.

We will be naked on the Carbo short put on Friday. Depending on what happens in the market on Thursday I may send out another update on Thursday night on Carbo. The long put will protect us until the close on Thursday.

Close LONG CRR Feb $90 Put at the market close on Thursday.

Chart of Carbo Ceramics

WFC - Wells Fargo (Short Put Combo)

The $30 insurance put on WFC expires this Friday. With WFC hovering just over $30 we may need to wait until the last minute to take action on that position. If WFC moves over $31 we can just let it expire and replace it with a stop. If WFC declines to $30 or lower we will need to close the position or at least restructure it.

WFC declined to $30.18 on Thursday to leave us right on the edge with two days to go on the long put. With the futures down hard we could see WFC break support at $30.

I am recommending we hold the put through Thursday and close it at the open on Friday. This is just an insurance put. We are not trying to make any money on it.

Close LONG WFC Feb $30 Put at the open on Friday.

Chart of WFC

New Short Put Recommendations


New Covered Call Recommendations


Long Term Recommendations


New Aggressive Recommendations


Existing Play Recommendations

Links to original play recommendation

BAC - Bank of America (Long Term)

BAC - Bank of America (Update 8/31)

BZH - Beazer Homes (Long Term)

MDR - McDermott International (Long Term)

BK - Bank of New York Mellon (Long Term)

SD - SandRidge Energy (Long Term CC)

YHOO - Yahoo (Long Term Combo)

PHM - Pulte Homes (LT Leveraged Combo)

JEF - Jefferies (LT Leveraged Combo)

GLD - Gold ETF (Short Put)

WFC - Wells Fargo (Combination)

CRR - Carbo Ceramics (Short Put)

JJC - Copper ETF (Short Put)

WNR - Western Refining (Covered Call)

EXXI - Energy XXI (LT Covered Call)

RIG - Transocean Offshore (Short Put Spread)

Margin Requirements:

There are several different formulas for determining margin requirements for naked put writing. These are normally broker specific and some can require larger margin requirements than others.

Here is the most common margin calculation for naked puts.

100% of the option premium + ((20% of the Underlying Market Value) - (OTM Value))

For simplicity of calculation simply use 20% of the underlying stock price and you will always be safe. ($25 stock * 20% = $5 margin)

Prices Quoted in Newsletter

At Option Investor we have a long-standing policy prohibiting the editors and staff from actually trading the individual recommendations in order to conform to SEC rules concerning trades.

The prices quoted in the newsletter are the end of day prices in most cases.

When discussing fills or stops the prices quoted are the bid/ask at the time the entry trigger or exit stop is hit. This is NOT a price that someone on staff actually got using a live order.

For entry/exit points at the market open the prices quoted will be the opening print. The majority of the time the readers are able to get a better fill than the opening print because of market maker bias at the open.

For trades with an opening qualification the prices quoted will be the bid/ask at the time the qualification was met.

All of these rules normally produce worse prices than an active trader would normally get. Because they are standardized there may be some cases where a price quoted was better than an actual fill. If you received a price that was dramatically different than what was quoted please let us know.